Superannuation Fund Life Insurance Cover
Since July 1st, 2007, when Reasonable Benefits Limits were removed, many Australians have realised the benefits of getting their life insurance through their superannuation funds. Rather than just getting the default coverage, it's important to note that there are both benefits and detriments of getting insurance through your super.
Why Would I Own My Cover Through Super?
It tends to be convenient for tight budgets, as the ability to own insurance through superannuation means one less debit on the monthly statement. Premiums can be paid from the existing investment, by salary sacrifice, or even as a separate, additional contribution. In the event of a self employed person, contributions towards paying a premium are also tax deductible.
What Do I Need to be Wary of?
Superannuation premiums are deducted from the balance of your superannuation investment. This means money that would otherwise be invested and earning interest, is going to be taken for the premium payments.
Another thing to be wary of is the tax that may be payable once a benefit is paid out. If the death benefit is paid to a dependent (under taxation law, children over 18 are non-dependents unless they are financially dependent or can demonstrate there is an interdependency relationship), then there is no tax payable.
If the benefit is paid to a non-dependent, then there is as much as 31.5% tax payable on the benefit. So you really need to consider, will it be cheaper in the long term to hold your cover through super considering the potential tax loss as well as the loss on your overall superannuation investment, having paid premiums all those years.
Regardless of which option you feel suits you best, Lifebroker can discuss these pros and cons and assist you in finding the best solution for your needs.